The Fed acted just after JPMorgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment houses. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JPMorgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.

The Fed's actions come as fears have spread that other financial houses could also be on shaky ground.

"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.

However on world financial markets, Asian stocks plunged Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand were also off and European stocks fell in early trading.

Oil prices hit a record in Asian trading as the value of the dollar continued its free fall and U.S. stock index futures were down sharply, suggesting Wall Street would open lower after sinking Friday.

"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

President Bush has scheduled a White House meeting Monday afternoon with his Working Group on Financial Markets, which includes Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.

Paulson said Sunday, "I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets."

The new lending facility -- described as a cousin to the Fed's emergency lending "discount window" for banks -- is geared to give major investment houses a source of short-term cash on a regular basis -- if they need it.

That's important because those big investment houses have key roles in the financial system and if one fails or is having difficulty it could put the whole financial system in jeopardy, said Mark Zandi, chief economist at Moody's Economy.com. These big investment houses have complex relationships with many players in the system, including hedge funds, commercial banks and others.

The lending facility will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the overnight loans.

The "discount" rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.

The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street.

The action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least three-quarters of a percentage point on Tuesday.

The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."

Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since 2001. Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first-quarter economic activity will be released in late April.

The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JPMorgan said the Fed will provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JPMorgan.